Transfer pricing perspectives: Winds of Change - PwC

More documents

Recommendations

Info

Administrative aspects oftransfer pricingOn March 9, 2011 the OECD releasedan invitation for comments associatedwith the administrative aspects oftransfer pricing. The work is regardedas important in order to strike a balancebetween the development of sophisticatedguidance for complex transactions, andthe cost‐effective use of taxpayer and taxadministration resources.The OECD is currently being encouragedto consider a variety of tools to helpfacilitate the administrative aspects oftransfer pricing, including for example,safe harbours, risk assessment, operationalguidance, and the use of APAs, to namea few.Also note that in April 2011, the UK HMRevenue & Customs announced it hadagreed to take the lead on preparinga survey into the practicality of globaltransfer pricing guidelines (relating tothe OECD Forum on Tax Administration),which will also consider issues connected tothe OECD’s project.The OECD did not encourage the useof safe harbours in the past, out of fearthat such rules could negatively impactthe subsequent mutual agreementprocess, and increase the risk of doubletaxation. However, implementation ofcertain safe harbour rules for low valueservices could potentially help relievesome administration costs (both for taxadministrations and taxpayers), withoutnecessarily having a material impact on ajurisdiction’s taxable income. The OECD’sconcerns associated with the resultingmutual agreement process could also bealleviated by making it explicit that themutual agreement procedures take priorityof safe harbour rules.The OECD is also being encouraged totake a closer look at risk assessments, anddevelop guidance on risk assessments formember states. This is to avoid situationswhere both tax administration andtaxpayer engage in lengthy and costlyaudits for what should be considered to below risk or immaterial transactions. Greateropenness and transparency associatedwith the triggers of an audit, as well asthe scoping of the agenda, could also leadto improvements. It could, for example,be helpful to see the fact-finding processbeing elaborated in advance and includingan analysis on which documents will needto be requested. Subsequent treatment bytrained transfer pricing officials is thenalso a key success factor, as it would ensurethat tax administration resources becomefocused on the important issues.Operational guidance as an effective toolwill also hopefully be considered by theOECD. Transparency, effectively achievedby the publication of operational guidancecan drive cooperation. Annual APA reports,training materials and announcement oftransfer pricing enforcement plans, such asthose including an outline of the industriesthat are likely to receive increasedattention, are welcomed.Additional operational guidancewould be particularly welcome in thearea of comparables and data used forbenchmarking purposes, especially in theabsence of local comparables. Guidance –with respect to the use of multiple-year data– may also be helpful.Another tool that can help alleviate someadministrative aspects associated withtransfer pricing is the greater use ofAPAs. Although several OECD countriesdo have APA programmes, many areunder‐staffed, making the processextremely lengthy. Dedicating moreresources to APA programmes would allowtax administrations to deal with potentiallycomplex transactions in a more open andcooperative environment, in the long runfreeing up resources that can be dedicatedto less-cooperative taxpayers.Similarly, the OECD is also encouragedto think about a broadening of thecombination of APAs with rollbacks aswell as an effective use of mandatoryarbitration (Art 25(5) OECD Model TaxConvention, with an ever-growing group ofcountries including this possibility in theirbilateral treaties.Operationalguidance asan effectivetool will alsohopefully beconsidered bythe OECD78 Transfer Pricing Perspectives. October 2011
Finally, another concern raised relatesto delays and maintaining momentumthroughout audits. Some of the informationrequested is not readily available orcannot be obtained, or if obtained, needsto be translated from English into a locallanguage. These challenges could beovercome by scoping the audit intelligentlyso that both tax administrations andtaxpayers know ‘what’s on and what’s offthe table’.It is not clear at this stage how far the OECDis willing to go in providing guidance onadministrative aspects of transfer pricing.However it is no doubt a positive signthat the OECD, through the initiationof this project, appears to acknowledgethat there is room for improvement in theadministrative aspects of transfer pricing.Transfer pricing and intangiblesThe OECD announced in July 2010 that itsnext ambitious project would be a review ofthe guidance on the transfer pricing aspectsof intangibles, and in particular Chapters VIand VIII. Working Party 6 (WP6) is workinghard on this project, and has already beenvery active in seeking input from businessesat an early stage.The OECD’s work in transfer pricingaspects of intangibles can, to a largeextent, be broken down to the followingthree questions:• What is an intangible?• Who owns the intangible?• How should the value of the intangiblebe determined?Some particular challenges associated withthe first two questions are discussed below.Definition of intangiblesDefinitional issues relating to intangiblesare nothing new to the OECD. Recall(during revisions to Chapters I‐III) thestruggle encountered when trying to findthe right terminology to describe that“special” thing that should give rise to aprofit-split method (non‐benchmarkable,unique, non‐routine, etc). Chapter IX alsomakes reference to “something of value”which is not explained in great detail in therevised OECD Guidelines.In a scoping document released in January2011, the OECD indicated that relevantfactors to consider when determiningwhether or not an intangible is used ortransferred includes, amongst otherthings, the ability to produce futureeconomic benefits to a business activity, theavailability of legal protection and whethera specific intangible can carry value if itcannot be transferred in isolation.Transfer Pricing Perspectives. October 201179
Page 2:
2 Transfer Pricing Perspectives. Oc
Page 6:
Russia adopts new transfer pricing
Page 9:
Starting in 2014, domestic related-
Page 15 and 16:
The trend of centralisation in mult
Page 17 and 18:
The new frontier - centre-led model
Page 19 and 20:
Limited risk entities and true‐up
Page 21 and 22:
Is it possible to mount an argument
Page 23 and 24:
Value Chain Transformation -beyond
Page 25 and 26:
Governments around the globe are fo
Page 27 and 28: ProcessesTransfer pricing managemen
Page 29 and 30: TPi - Data ManagementMost multinati
Page 31 and 32: ConclusionTPi changes the historic
Page 33 and 34: The question of who takes risky dec
Page 35 and 36: Why cost plus might be the wrongpol
Page 37 and 38: It is not easy to deal with risk in
Page 39 and 40: ConclusionIt will not always be the
Page 41 and 42: Perspectives on risk from GermanyIn
Page 43 and 44: Perspectives on risk from IndiaThe
Page 45 and 46: In 2008, we published an article en
Page 47 and 48: The taxpayer will also want to unde
Page 49 and 50: Proactive preparationTransfer prici
Page 51 and 52: Dealing with risk assessmentsMuch o
Page 53 and 54: Once a taxpayer has identified its
Page 55 and 56: ConclusionAlthough it goes without
Page 57 and 58: The Asia Pacific (APAC) region is i
Page 59 and 60: As can be observed from the diagram
Page 61 and 62: As more transactions involve Singap
Page 63 and 64: AuthorsSpencer ChongPartner, PwC Ch
Page 65 and 66: Conceptualising the challengeIntra
Page 67 and 68: During the course of recent transfe
Page 69 and 70: Passive associationIn performing a
Page 71 and 72: ConclusionsTransfer pricing for fin
Page 73 and 74: Let’s talk business realities!Whi
Page 75 and 76: The appropriateness of using a trad
Page 77: Following the completion of the rev
Page 81 and 82: Transfer Pricing developments in th
Page 83 and 84: Transfer Pricing Perspectives. Octo
show all

Transfer pricing perspectives: Winds of Change - PwC

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?